Indian budget spells out steps to achieve Modi’s $5 trillion goal

Weeks after winning a second term by a landslide, the Modi government of India presented a cautious, non-populist and all-encompassing, revenue-generating budget on Friday with a $5 trillion economy goal in mind by 2024.

The proposed taxes will mainly hit the rich and super-rich.  The tax rates remain unchanged for the middle class who expected some new relief. They can still save on tax by going for affordable housing.

The additional excise duty on petrol and diesel prices announced in the budget will affect the middle class and may spark inflation. 

The previous Modi government, in its pre-election budget, did not raise taxes on fuel as it feared such a move could prompt people to vote against it.

Now, Finance Minister Nirmala Sitaraman, above, defended the fuel tax in her first budget speech, saying crude prices have softened from their highs.

But people following world events are worried about possible escalation in the ongoing trade wars and tensions in the Strait of Hormuz and Strait of Gibraltar involving Iran, the US and UK. They could upset India’s fiscal plans, many fear.

Sitaraman’s party spokesmen played down the fuel tax, saying the hike comes after the government reduced the price on cooking gas by $1.5 per cylinder.

Markets reacted negatively to the budget because of its failure to abolish the maximum 30% corporate tax, taxes on the super-rich and additional excise duty on fuel prices.

The budget, however, brought cheers to farmers, villagers and the poor by proposing steps to ensure them safe drinking water, home and 100% electrification.

While the budget taxed the super-rich, it lowered taxes on smaller companies.

It also extended the pension scheme for 30 million retail traders.  

The budget’s thrust was on infrastructure development, enhanced connectivity, jobs creation, drawing foreign direct investment (FDI), digital economy and higher education.

Since FDI is necessary to push growth, Sitaraman proposed bigger role for overseas investors in India’s insurance, aviation and media sectors.

The finance minister started her budget speech by spelling out measures for infrastructure development and better connectivity to make life easier for India’s 1.3 billion people.

While proposing more highways, airports, and waterways, Sitaraman also announced a common national mobility card to enable people avail these facilities easily.

For better connectivity, she also proposed steps for a world-class communication network and a ‘one nation, one grid’ model to make power available for all states.

To encourage green commuting, measures and incentives were proposed to make motorists switch to electric vehicles.

The minister gave metro line a big push to make commuting quicker and easier and de-congest roads by encouraging commuters to leave their vehicles at home and hop on metro trains.

The incentives for affordable housing and push for massive infrastructure development are expected to generate more jobs for youth in construction and supply-related areas.

The budget proposes creation of 100 clusters for small and medium common facilities during 2019-20, providing training and better opportunity to market products.

Such clusters are likely to make traditional industries such as bamboo, honey and khadi more productive and profitable and generate jobs for some 50,000 artisans.

To encourage more start-ups, the government will follow an e-verification process by which funds raised by them will not require any kind of scrutiny from the income tax department, the finance minister said.

To give a fillip to ‘Make in India’ plan, the government will invite global companies through a transparent competitive bidding to set up production units in areas such as semi-conductor fabrication, solar photo voltaic cells, lithium storage batteries, and solar electric charging infrastructure.

The government wants to make India a global hub of electric vehicle (EV) manufacturing and create more jobs in this sunrise industry.

Sitaraman says all these measures will help India reach the goal of $5 trillion economy by 2024.

But such a goal is achievable only if the government can raise GDP growth to 8% a year. That is not an easy task.